How economic criminals carry out their activities
Economic criminals pose a constant threat to companies. According to data from the Federal Criminal Police Office, economic crime resulted in damages of approximately €2.1 billion in 2022. However, the perpetrators don't always come from outside the company. According to the damage statistics from insurer Allianz Trade, 57% of the crimes were committed by insiders from the affected companies last year, and it is expected to be around 51% this year. However, insiders account for the majority of the damages, accounting for approximately 69% of the total damage this year (2022: 73%). The statistics reveal that the highest damages are caused by well-educated male executives in their mid-40s who have been with the company for at least ten years.
But what drives these employees to become criminals? Legal scholar and criminologist Hendrik Schneider distinguishes four types of offenders, which he referred to as "late bloomers to a criminal career" during a presentation of the data to journalists on Wednesday.
Four types of offenders
- The dependent: Typically, they act as accomplices to a dominant main perpetrator, from whom they are economically or hierarchically dependent.
- The unrestrained: Criminologists refer to them as individuals with a "business criminological stress syndrome". Their motto is "earning and burning money". Often, these crimes occur during a period of upheaval.
- The inconspicuous: For this type of offender, the favorable opportunity is often the sole trigger for the crime. When it comes to light, it surprises their entire environment.
- The crisis offender: They are under significant financial pressure and see the crime as the only way out of their financial crisis.
As per the Allianz Trade damage statistics, the perpetrators often start by targeting relatively small amounts, which then progressively increase over time. Schneider says that these individuals gradually slide into criminal activity. To maintain control, they often display conspicuous commitment, such as refraining from taking vacations to avoid the risk of a stand-in discovering their wrongdoing.
Payment fraud on the rise
White-collar criminals are increasingly daring to engage in purchase fraud. According to Allianz Trade's damage statistics, every second case is related to this type of fraud. Cases of payment fraud have also seen a significant increase in the past year. Additionally, fake-president incidents, where fraudsters mimic urgent orders from top management, are making a comeback.
Prominent cases of multi-million euro damages at Leoni and FACC had previously brought this type of fraud into the spotlight, and in recent years, the damages, as reported by Allianz Trade, had significantly decreased. However, this trend has changed since last year.
In 2022, fake-president cases accounted for only 8% of reported incidents but were responsible for 29% of the damages. The total damage amount increased by 38% in the past year compared to 2021, and for this year, the insurer expects a further increase of 24%. The number of incidents is projected to rise by 17% in the current year. Rüdiger Kirsch, a fraud expert at Allianz Trade, anticipates further growth in the coming years. Algorithms based on generative artificial intelligence (AI), fueled by employee newsletters or intranet content, could create stylistically convincing fake messages, thus elevating the authenticity of correspondence to a new level.
Rüdiger Kirsch, Allianz Trade
Inquiries by employees serve as a protective mechanism.
Leadership has a significant lever in their hands: "Inquiries by employees serve as a protective mechanism," emphasizes Kirsch. Anyone who is in doubt can simply ask their supervisor whether they have indeed issued an instruction, which can thwart a fake president attempt. "This requires flat hierarchies and a good communication culture."
Kirsch advises companies to regularly sensitize their employees to new external threats. In cases of damage caused by internal perpetrators, they should demonstrate clear consequences to deter imitators.
He expects that the Whistleblower Protection Act, which came into effect in July as the German implementation of the EU Whistleblower Directive, is likely to lead to more reports of misconduct. As a result, more wrongdoings by internal perpetrators could be uncovered in the future.